California Clarifies, Strengthens Wage Statement Statute

California Governor Jerry Brown has signed into law amendments to Labor Code section 226 — which sets forth the information that must be printed on California workers’ pay stubs — to clarify an ambiguity that allowed some non-compliant employers to elude meaningful enforcement actions.

The amendments chiefly address the language of Labor Code section 226(e), which provides that a plaintiff “suffering injury” may allege wage-statement violations. Some employer defendants have successfully argued that, in a class action, the inquiry into whether class members have suffered injury would be intrinsically individual, thus rendering individual questions predominant over common questions of law or fact. While many courts have rejected this argument, a sufficient number of state and federal courts have denied certification of wage-statement classes based on the idea that individual inquiry is required in order to make the injury determination. Under this analysis, class treatment of all wage-statement actions would effectively be precluded, despite the fact that standardized pay stubs allow for the sort of violation that is ideally suited to class treatment.

In order to remedy this inconsistency, the Legislature drafted a clarifying amendment, Senate Bill 1255, which provides that an employee is deemed to have suffered injury if the employer fails to include “accurate and complete information” on employees’ pay stubs, essentially making it a violation for an employer to omit any of the required data enumerated in Labor Code section 226(a)(1)-(9) (including gross and net wages earned, hours worked, and hourly rates). In addition, a “reasonable person” must be able to “promptly and easily determine” the information corresponding to each requirement. By making the analysis subject to a reasonable-person standard, the prospect of individualized inquiries is negated, analogous to the fraud-on-the market and presumed reliance doctrines applicable to securities and consumer class actions.

The amendments will take effect January 1, 2013